What Stocks Can be Bought in a Down Stock Market
Stockscores Foundation for the week ending October 16, 2023
In this week's issue:
In This Week’s Issue:
- Webinar Videos – These will help your investing and trading
- Market Outlook – At Support, will the Markets Bounce Back?
- This Week’s Market Minutes video – Gaza vs Israel, Should You Buy Gold Stocks?
- Trader Training – What Stocks Can be Bought in a Down Market
- Strategy – In Play Stocks
Here are the videos from the series of webinars I did last week:
AVOID STOCK MARKET CRASHES AND FIND HOT STOCKS
DAY AND SWING TRADING FOR PART OR FULL TIME INCOME
HOW TO INVEST IN THE STOCK MARKET SUCCESSFULLY
HOW STOCKSCORES TOOLS AND EDUCATION CAN HELP YOU MAKE STOCK MARKET PROFITS
Market Outlook – At Support, Will the Markets Bounce Back?
Stocks have been trending lower for a few months with the Smallcap stocks suffering the worst. This is because they tend to be more interest rate sensitive and the Bond market has been moving sharply downward, increasing interest rates.
Comments from members of the US Federal Reserve have implied that this selloff in the bond market has reduced the need for the Fed to raise rates further and that has started to be supportive for stocks. We are seeing the buyers starting to take an interest in bargain hunting stocks.
However, the downward trendlines have not been broken yet so I recommend caution until that happens. Conditions are improving but the market’s are not strong yet.
This Week’s Market Minutes video – GAZA VS ISRAEL, SHOULD YOU BUY GOLD STOCKS?
Gold was very strong this week in response to the conflict in Israel and Gaza. This week, I analyze the chart of Gold and give my prediction for its future direction. Then, analysis of the stock, commodity, currency and interest rate markets before I look at the day trade of the week on TANH.
Click here to watch this week’s video
Trader Education – What Stocks Can be Bought in a Down Market
Stocks have been sliding lower for a number of months and, while we are starting to see stability and buying opportunities, the overall market is still far from enjoying an upward trend.
How do you make money buying stocks in a market like this?
Before I answer that question, I know many will ask why we not just short sell stocks and benefit from the market weakness. There are a few issues to consider.
Short selling is effective when the market is trending lower. However, it is also quite capital intensive. For a trader with a significant amount of trading capital, shorting makes sense. However, stocks that go down with the market usually go down at a pace similar to the overall market. That means making outsized profits is not that likely because individuals stocks will not be as volatile to the downside as a hot stock can be to the upside. You might see a stock go from $100 to $80 over a few months but there will also be stocks that go from $2 to $8 in a few weeks, if they are in play.
This leads to what should be the focus for buying in a weak stock market. You have to focus on Alpha stocks.
These are stocks that are trading on their own story. There is news or a rumor that has a significant effect on the market’s perception of company fundamentals. A crowd gathers and chases the stock higher, causing huge gains in a relatively short time. Each week, there are 5 to 20 of these stocks, even when the overall market is trending lower.
What has to be understood, however, is that these moves are usually quite short term. Check the charts of MNTS, TPST, SECOand PCSA and you will see stocks that made big gains in days, or even hours, despite having been in downward trends in the recent past.
How do you find these stocks? You have to look for stocks trading with volume that is much higher than normal, strong liquidity and which surprise the market with strength. Return to the charts of MNTS, TPST, SECOand PCSA and you will these things started the upward trends.
Almost all hot stocks start their market beating trends with abnormal activity but not all abnormal activity leads to market beating trends. When I find a stock that is trading abnormally, I go through a process of evaluating the chart to identify the time to enter. I want to make sure that potential reward outweighs the downside risk. I never chase stocks that are well into their trend. We have to buy when they just start to break from low volatility, not well into the trend when the crowd is chasing them higher.
These trades tend to be shorter term because the crowd quickly moves from what hot story to the next. For longer term trades, the overall trend of the market is more important. So, in this market, we need to be more short term oriented. We can start to look for longer term trades when the market’s trend turns higher.
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While the market indexes are in downward trends, there are stocks every day that make very large percentage gains and are very actively traded. These stocks will often be hot one day, quiet down for a few days and then come alive again. Keeping a list of these hot stocks and monitoring them for that second wave of life is the concept behind my Alpha Echo strategy that we do each day in Active Live on Stockscores.
You can scan for stocks that are in play by looking at stocks that are up at least 10% with number of trades >50,000 using the Stockscores Market Scan.
Here are two stocks that made big moves today but which were on our list of stocks to watch, we found them early when they started up.
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